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Take a directional call and sit on it without worrying about volatility: Anshul Saigal, Kotak Mahindra AMC

Any upward move in crude prices to a large extent is already priced in.

ET Now|
Sep 17, 2019, 04.35 PM IST
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If your time horizon is the next three-six months, then you will never get the markets right. But with a time horizon of 2-3 years and with the kind of valuations that we are sitting on today, it is hard to go wrong, says Anshul Saigal, Head & Portfolio Manager, Kotak Mahindra AMC. Excerpts from an interview with ETNOW.

What can we blame for this fresh selloff in the markets? Is the market now spooked by the weakness in crude?
The immediate reason for this volatility seems to be crude but as we all know the markets have been nervous because of more global reasons than just domestic reasons. Of course, there are domestic reasons as well but the nervousness in general runs through emerging markets globally. In the small and midcap space, this nervousness has continued through the year and really the markets are moving in fits and spurts and in certain period, you will see a complete trend reversal.

Since the data points are adverse, markets will reverse again in downward moves. So, for an investor to time moves in this market is really a loser’s proposition. This is a market where one has to take a directional call and sit on it -- be it long or short -- without worrying about volatility.

If crude does not come down, it will disturb the market. We do not know when crude will come down or whether it will come down. So, one works with the assumption that there is a three-month or a six-month reboot in crude prices, which is $55 has become $60 plus. Are markets prepared for that?
The preparation that you talk of has to be seen in the context of how it will impact fundamentals and how much of that impact in fundamentals is already priced in. It is a fact that in the last one and a half years, we have seen the smallcap index correct by almost 50% now. What that tells you is that in the broader markets, valuations have corrected quite meaningfully and so the market’s ability to disappoint further on this corrected expectation is going to be limited. While there can be further disappointments, the resulting impact on prices is likely to be limited.

On that count, you could say that any upward move in crude prices to a large extent is already priced in and while it may lead to some amount of volatility, it would not be a prolonged downward move on the lines of what we have seen over the last one and a half years.

The majority of the downside is already there. Probably, further downsides are going to be limited from here and as you rightly said, no one can tell when crude will turn and hence valuations have to be anchored on what an investor has to be investing in this market.

Also if your time horizon is the next three-six months, then you will never get the markets right. The time horizon has to be two to three years. With that time horizon, the kind of valuations that we are sitting in today, it is hard to go wrong.

Would you invest in smallcap and midcap because right now that is the market which is bombed out? Would the market continue like this for the next three, six months or has the rebuilding process started?
Before this crude incident happened, one saw upward ticks in small and midcap prices, which gave an indication that that market to some extent had stabilised across stocks and segments. There were upticks in September in that space. But of course, after the Saudi Aramco incident, things have become volatile again. Having said that, we believe there are pockets of valuation within this space which are quite attractive. These pockets are in the infrastructure, real estate and industrial space. Also, there are certain segments within the consumption space, building materials. We do see that value is emerging here.

If your time horizon is the next three-six months, then you will never get the markets right. But with a time horizon of 2-3 years and with the kind of valuations that we are sitting on today, it is hard to go wrong.

In the last six months to a year, growth has tapered off but long-term earning potential of these companies remains intact and hence we are buying that.

What is your view on NCC and NBCC? Ever since the developments in Andhra Pradesh, these two stocks have not really been able to get out of the woods?
NCC has a foot in Andhra Pradesh; I do not think NBCC has operations in Andhra Pradesh. NBCC’s issues are more related to the Delhi region, NCR region and what is happening on regulation with its construction happening in Delhi. It looks like both these companies have not really got off their previous issues, but this is a market where ticks are just going down; it does not matter what the fundamentals are.

Any bout of weakness on the business and the investors are first out to sell and they think later. Valuations are becoming cheaper by the day. Many of these companies have substantial earning potential over the next two to three years.

The NBCC order book is about Rs 85,000 crore and their revenues are roughly in the region of Rs 9,000 crore, which means nearly eight years of revenues are there in their order book. Even if there is a marginal slowdown in their growth because of regulations, the upside on revenue growth over the next three to five years can be substantial.

Of course, one has to factor in how much the slowdown is on account of regulations but on the balance, it looks like this is a company which has a substantial order book and has a good earning potential over a 3-5-year period.

Investors are selling first, thinking later. This is the nature of the markets. But it is during these times that a check on emotions is much required because that is one thing which will make you money over a period of time and help you tide over these times.

Also Read

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Slowdown is cyclical, earnings growth to accelerate in next 2 years: Anshul Saigal, Kotak PMS

Despite all sorts of crises, Sensex went up from 8,000 in 2008 to nearly 40,000: Anshul Saigal

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